VIX: Record net-short options (fundamental analysis)Although we primarily trade FX contracts, staying on top of the equity markets around the world can have huge advantages when trying to identify opportunities preparatory to them even showing validity. The CBOE Volatility Index, known by its ticker symbol VIX, is a popular measure of the stock market's expectation of volatility implied by S&P 500 index options.
Put simply, this chart represents volatility in the most widely used benchmark in equity markets (SPX). As you can see, over longer term time frames price has compressed. This can be proven by looking at the average true range indicator (ATR) and historical range percentage indicator (HRP) on the daily timeframe. You will see levels very low; significant because the last time these two indicators were this low on the daily chart the VIX was prior to big spikes in volatility. These are incredibly complacent and quiet markets. There's nothing wrong with equity markets hitting new highs, however the more risk-appetite that traders have in their books and the further it deviates from what we would construe as a well founded risk position. Traders are carrying assets this high up in the market know that their exposure at these prices is risky. This is more of a risk when you consider the representation of volatility seen in the chart above.
Looking at futures for the VIX, there is a net short position on the derivatives currently not expired. What's significant though is that the amount of contracts net short is 218,000 a new record. This shows the willingness of the market to take on risk through leverage. Keep in mind, the amount of free cash for Wall Street is at record lows, as the complacency of it itself can be seen just by considering this fact.
